Faster Pace of UK Wage Growth Pushes GBP/EUR Exchange Rate Higher
The Pound to Euro exchange rate (GBP/EUR) has risen to a one-month high today, following reports of an improving UK jobs market.
The headline data has been UK wage growth excluding bonuses, which has surprisingly risen during November.
The small increase from 2.3% wage growth to 2.4% has raised optimism among GBP traders, as it comes after a slowdown in UK inflation last week.
Lower inflation and higher earnings mean that the gap between the two fields is narrowing; this equates to a reduced wage squeeze in the UK.
Despite the supportive stats, however, Hargreaves Lansdown Senior Economist Ben Brettell has warned about slow improvements;
‘With pay growing at 2.5% [including bonuses] and inflation running at 3.0%, the squeeze on real wages continues for the ninth consecutive month.
But with inflation seemingly set to fall back towards the 2% target, this looks like it’ll come to an end in the next few months.
We should remember, however, that the only true driver of real pay growth and rising living standards is productivity growth.
This is something the UK has struggled with since the financial crisis, and as yet nobody seems to have solved the puzzle’.
UK Unemployment Rate Remains Static despite Record Rise in Employment
Other UK stats today haven’t given Pound traders as much reason for optimism; this particularly relates to the unemployment rate reported in November.
The jobless rate remained at 4.3% as forecast, although the change in employed persons pushed employment to 75.3%, the joint-highest level on record.
Looking at the data in detail, National Institute of Economic and Social Research (NIESR) Associate Research Director Dr Heather Rolfe said;
‘UK labour market statistics released today show employment in the 3 months up to November 2017 is at a record high, driven by an increase in full time employment.
However, vacancies are also at an all-time high, revealing difficulties for employers in some economic sectors, including those with a high proportion of migrant employees facing the challenges of Brexit’.
The issue of lower engagement in roles by migrant workers was raised late last year, in the form of concerns about falling nurse applications in the UK.
Slowing Eurozone PMIs Trigger Euro to Pound Exchange Rate Decline
A spate of disappointing economic activity measures have weakened the Euro today, causing losses against majors like the Pound and the Australian Dollar.
Although the Eurozone composite PMI estimate has risen for January, German manufacturing activity has slowed along with the overall German reading.
While the Euro has been devalued by the data, IHS Markit Chief Business Economist Chris Williamson has remained optimistic about the future, saying;
‘The Eurozone has got off to a flying start in 2018, with business activity expanding at a rate not seen for almost 12 years.
With such a strong start to the year, expect to see forecasters mark up their expectations of Eurozone growth and inflation in 2018, and for policymakers to sound more hawkish’.
Pound to Euro Exchange Rate Forecast: Sterling Losses Possible if UK GDP Slows
While the Pound has dominated against the Euro today, this favourable movement may be reversed when UK GDP estimates are released on Friday.
The preliminary readings for Q4 2017 are tipped to show slowing year-on-year GDP growth, which could panic GBP traders and lower confidence in the Pound.
The next notable Eurozone news will be the European Central Bank (ECB) interest rate decision on Thursday afternoon.
The ECB isn’t expected to alter monetary policy, but could inspire a Euro to Pound rally if policymakers hint at monetary policy tightening in the coming months.
